AMP upgrades 'profit' to $620m

AMP shareholders remain braced for a massive loss for 2003 but the company salvaged something from the sea of red ink yesterday by lifting its estimate for underlying earnings and some shareholders will be glad the insurance giant has finally agreed to buy back its underperforming listed income securities - although at below the price paid by original investors in 1999.

Aided by factors beyond its control, such as the strong sharemarket, AMP now expects an underlying net profit of $600 million to $620 million for calendar 2003, to be reported next week. But shareholders are still facing a bottom-line loss, including write-downs relating to its British demerger plan, of more than $5 billion.

The new underlying profit range is well above the $402 million to $535 million range given in the explanatory memorandum for the demerger of the UK business, even though that range was set only two months before the end of the year. However, roughly half or $30 million to $45 million of the newly discovered additional earnings are due to undisclosed "positive one-off items", rather than business unit performance.

Shares in AMP soared 45c to $4.96, closing at $4.91.

Wilson HTM's Brett Le Mesurier said: "Originally it was worse than most people thought, now it's better than most people thought," he said. "The consistent feature is it's different to what most people, not least of all management, think."

On the income securities, AMP is offering long-suffering holders (including many former GIO shareholders) $98 per security and accrued interest, instead of the $100 per security plus accrued interest under the original redemption provisions. AMP is opting for an optional "buyback" of as many of the securities as it can at any price. The securities not bought back will remain listed.

The insurer has also settled litigation with several overseas hedge funds which were contesting AMP's previous decision not to redeem the securities.

AMP has changed its position on the income securities because it is now able to more quickly pay down its $3.2 billion in debt, including the income securities, thanks to a transfer in December of $725 million out of life fund subsidiary AMP Life.

AMP Life has enjoyed higher profits and investment outperformance in strong markets and had also undertaken undisclosed "capital management" initiatives to free capital.

Managing director Andrew Mohl said the discrepancy in AMP's forecasting reflected, "in roughly equal parts, improved business unit performance, particularly in the final months of the year, and a number of positive one-off items that emerged in the end of year review process".

This suggests AMP's operating results, excluding the one-offs, are roughly 10 per cent better than in the explanatory memorandum, although it is not clear how much of the gain is attributable to its non-core Cobalt/Gordian division and the core businesses in distribution and asset management. AMP was not saying.

However, analysts said they'd look more fondly on the rise in earnings if it were attributable to cost cuts and new business, rather than any actuarial tricks.